Tweeter Case Study

Question 1

Analyzing the price competition generates interesting results. Objectively, Tweeter's prices remain competitive with other retailers. Overall, Tweeter is at or below the prices of Lechmere, Circuit City, and Wiz 75% of the time. (Appendix A). When compared individually, Tweeter beats or matches Lechmere 83% of the time, Circuit City 79%, and Wiz 62%. (Appendix A). Tweeter does not have a single item priced lower than Circuit City. Further, many times the competitors matched prices with Tweeter, the competition was running an ad or a sale to achieve Tweeter's low price.

Tweeter suffers from the disunion between the consumer's subjective belief about pricing and the objective pricing comparison described in Exhibit 13. Tweeter's Vice President of Marketing, Noah Herschman, points out "even though we were competitively priced, because of our high price image, no one was listening," (Pg 6). Even after implementing APP, very few (4.7%) people believed Tweeter's prices are lower than competitors. (Exhibit 14). However, only 16.0% of survey responders perceived Tweeter's prices as higher than competitors (Exhibit 14). The most revealing and troubling finding from the survey is the lack of brand awareness. A majority of the responders, 54%, did not know Tweeter's pricing compared to Lechmere and Circuit City. Tweeter's actions are irrelevant if consumers remain unaware.

Adjusting consumer perception is particularly difficult given Tweeter's branding position and legacy. The interplay between price and quality may provide one theory explaining customer's reluctance to accept Tweeter as competitively priced. Customers rationally perceive cheap products as being low quality. Conversely, costumers subjectively bundle high quality with high price. Tweeter's identity issues stem from the logically positive correlation between price and quality. Tweeter boasts of "high quality and great customer service," (Pg 7). In terms of pricing, these two characteristics signal premium pricing in the minds of consumers. After all, customers believe they "get what they pay for." Accordingly, Tweeter's focus on promoting its high quality and great customer service exacerbates the disunion of customer's subject beliefs and the objectively comparable prices.

Question 2

The purpose of adopting the APP strategy was to better communicate price competitiveness to consumers. Tweeter believes an APP approach will alter customer's subjective impression with a more accurate objective understanding. The benefits of replacing customer's subjective beliefs with an objective understanding of Tweeter's competitive pricing motivates Tweeter's decision to adopt APP and abandon sales and everyday fair pricing.

While it seems that more consumers perceive Tweeter's prices higher relative to the competition (Exhibit 14), as discussed in Q1, Tweeter's prices are generally lower than Lechmere, Circuit City, and Wiz. Despite the negative consumer perception, the financial results exemplify success. Since adopting the APP strategy in 1993, Tweeter's sales have grown from $43.7M to $82.3M (Pg 8). More importantly, same store sales have increased by 50% (Pg 8).

However, accepting APP as successful on face value would be naive and irresponsible. Other factors could have easily and logically attributed to the spike in sales. For example, Tweeter's management must control for the possibility that consumers have developed an increasing appetite for electronics. Customers elevated use of electronics has likely led to the adoption of higher priced and, therefore, higher margin products. Consumers are more willing to pay a premium for new features when they are accustomed to the current versions. Additionally, acquisition of the Bryn Mawr Stereo and Video could have manufactured customer acquisition and spurred growth not attributable to APP.

The facts of the case preclude us from confidently concluding that adopting APP was the main driver in Tweeter's sales growth. The abundance of logically contributing factors suggest that adopting APP was merely coincidental with a myriad of other enablers, rather than the main driver in Tweeter's growth in sales.

The inability to accept APP being successful for Tweeter does not completely render APP useless. The success of APP depends on many factors. Tweeter must initially set the precedent that its prices demonstrate everyday fair pricing. Otherwise, APP may be viewed as a conniving and lazy pricing strategy aimed at bifurcating consumers smart enough to shop around and others willing to accept prices at face value. APP was not created because Tweeter has high prices, but rather to enable customers to purchase a product without waiting for a store to slash prices. With APP, customers can buy the TV of their dreams and benefit from the big sales after holidays or big sporting events. Further, Tweeter must convey the APP's ease of use. Tweeter could convey APP as a benefit program, which will generate customer data and increase customer retention. While signing up for the program, team members can easily explain the benefits and details of APP.

Ultimately, APP did not mitigate the switching costs needed to adjust consumer behavior, especially in the consumer electronics market full of dominant players with recognized brands. However, APP helped acquire some customers, and with minor adjustments can achieve greater success.

Question 3

There are a number of customer segments in the U.S. consumer electronics industry that can be classified by their levels of price sensitivity, appreciation for quality products, importance of customer service, and various other attributes. Tweeter's core customer base consists of consumers who place a high value on the quality of products, appreciate exceptional customer service, and are willing to pay a premium for this quality and service. In examining Tweeter's customer breakdown, we find that 70% of Tweeter's customers, this core group, are categorized as Quality/Service customers. The remaining 30% is divided between the Price-Biter, Entry Level, and Convenience customers at 20%, 5%, and 5%, respectively (Exhibit 8).

Unfortunately for Tweeter, the Quality/Service segment composes only 10% of the total market in New England. Despite Tweeter's significant advantage, Circuit City and Lechmere, the top two competitors in the market,